Feeling good about the market's direction. Wish it would drop more...

“An investor should act as though he had a lifetime decision card (about his ability to buy stocks) with just twenty punches on it.”

AND

"The NYSE is one big supermarket of companies. And you are going to be buying stocks, what you want to have happen? You want to have those stocks go down, way down; you will make better buys then."

His approach is probably not very Boglehead-like: He's essentially talking about timing the market on the buy side. He doesn't think the big equity purchase decisions we make are between DCA and jumping all-in at once. And he's certainly not a set-and-forget rebalancer.

The question for those who would try to buy equities on sale--especially those a bit more Boglehead-like, who are looking to buy the market and not individual companies--is when to buy into a correction. We're feeling good about the market's direction but we wish it would dop more.

Yesterday, the the market dropped about 10% off MSRP (my characterization). One approach would be to buy that drop and hope for even further discounts in the near-term future. Sure, today's purchase would be worth less in a few weeks or months but buying now is a hedge against a quick rebound. Another approach would be to not to use up one of your 20 punches on the card until a bigger drop.

Decisions, decisions.

Re: Feeling good about the market's direction. Wish it would drop more...

Posted: Fri Feb 09, 2018 6:54 am

by ivk5

If you're talking new money, put it in, you might never get a better "deal."

If you're talking old money, with the benefit of hindsight wouldn't it have been better to buy a few months ago at a greater "discount"?

These timing threads never seem to mention the risk of keeping dry powder on hand waiting for the right "moment."

Re: Feeling good about the market's direction. Wish it would drop more...

Posted: Fri Feb 09, 2018 7:35 am

by JC565

trading vs investing.

its all proportional to your risk profile.

my perpective at 30 yo, is that I hope it plummets. A guy that just signed the contract on his retirement yacht probably doesn't feel that way.

Re: Feeling good about the market's direction. Wish it would drop more...

Posted: Fri Feb 09, 2018 7:36 am

by rerod

I'm right there with you Ron Scott .. I have some bonds I want to sell, but when.. And I want to by equities, but when.. Decisions, decisions.

I don't think any TA can accurately make the call. Most of it is luck.

Re: Feeling good about the market's direction. Wish it would drop more...

Re: Feeling good about the market's direction. Wish it would drop more...

Posted: Fri Feb 09, 2018 7:54 am

by IlliniDave

I'm at the tail end of accumulation, and I guess you'd say I'm a believer in mean reversion. Since I'm still accumulating for a short while, a sharp near-term reversion is better for my long-term prospects than a protracted one. Doubly so because it would probably prompt me to work an extra 1-2 years. That's a selfish outlook and of course I recognize that what is good for me would be bad for the person who retired at the end of last year who would bear the brunt of a rapid mean reversion in the form of near worst-case sequence of returns risk.

Re: Feeling good about the market's direction. Wish it would drop more...

You want to sell bonds and buy equities to maintain your desired asset allocation (AA). A common approach here is to define specific bands (often both relative and absolute) in the IPS along with the desired AA. When your actual AA drifts beyond the bands, it's time to rebalance. Alternative rebalancing strategies include set dates (annual around birthday, for example). The point is partly that "when" should be based on objective criteria planned in advance to minimize risk of behavioral errors.

You want to shift your AA due to changes in your circumstances / changes in your need/willingness/ability to take market risk. In that case I think the prevailing view here is to make changes gradually, ie in small increments. Some people bake a "cooling off" period into their IPS (eg following any decision to change AA, wait 90 days before executing). Again, this is partly to minimize risk of behavioral errors.

You want to shift your AA to attempt to time the market. If that's the case, best that we just agree to disagree I suppose. (One could view this as knowingly committing the behavioral error BH philosophy is intended to mitigate.)

Re: Feeling good about the market's direction. Wish it would drop more...

Posted: Fri Feb 09, 2018 8:15 am

by selters

It may feel good to buy stocks now that the correction is officially here, but many people who have kept dry powder have kept it since the market was way lower than it is now, so these people would still have been better off if they bought stocks as soon as they got the money.

Re: Feeling good about the market's direction. Wish it would drop more...

Posted: Fri Feb 09, 2018 8:54 am

by Ron Scott

Everyone's situation is different.

If you're 30 years old and 50-50, a significant correction could push you to 70-30. If you're 70 and 50-50 not so much.

And if you're retired, living on a 2% withdrawal rate, and don't even need your current stock portfolio to live off, then call it dry powder or whatever; you've got options.

Those recently retired and making new AA decisions might not have wanted to go heavy into equities given the valuations. But if we drop another 20% feelings might change.

The point here--Buffet's sentiments as well--is that reacting to the reality of the marketplace, in addition to or in lieu of an AA and rebalancing plan put in place under different circumstances, might be advantageous long-term.

Individuals might also consider putting buy-low provisions in their personal investment statements, so they act in a disciplined way and not on giddy emotions about the buying opportunities in downturns.

Just a thought...

Re: Feeling good about the market's direction. Wish it would drop more...

Posted: Fri Feb 09, 2018 9:34 am

by bottlecap

Yup. Decisions, decisions. For the market timer.

I guess you can read anything into a quote or two. But I wouldn't take much of what Buffet says at face value. He is keenly aware of the things he says and says them for a reason.

The two quotes you picked are designed to convey that he has confidence in the long term value of the market and so should you. Particularly if you are an investor in Berkshire Hathaway, because then you are one of the persons for whom his statements are largely meant.

The purpose is to shore up confidence in falling markets and particularly to keep people buying Berkshire during such times.

When is the last time you heard Buffet say that the U.S. stock market were not a good investment and you should get out? I'm guessing never. But that would be the logical thing for him to say if his other quotes actually meant you should market time to buy low.

Personally, I hope the market goes up until I have enough to change my AA so stock volatility doesn't matter to me.

If you are hoping for a drop, then you either are a very early accumulator with little invested, or you have the wrong AA.

JT

Re: Feeling good about the market's direction. Wish it would drop more...

If you are hoping for a drop, then you either are a very early accumulator with little invested, or you have the wrong AA.

JT

I don't disagree with most of your post but I do disagree with this. I am neither a very early accumulator nor one with very little invested. However, in general terms one should prefer that stocks are priced lower in the accumulation (buying) phase and higher in the distribution (selling) phase. I personally have felt that stocks have been expensive. I did not stop buying them of course, because I don't time the market. That said, I appreciate the chance to accumulate more shares for the same amount of $ each month because I believe that ultimately they will continue to rise over time.

In other words, this is how the market works: stock go up, and then down, and then up, and then down, but with the overall trend being up. I can't say I stay up nights praying for stocks to drop, but I do see a drop as a good buying opportunity. Much of that attitude is based on my time spend on this board.

Re: Feeling good about the market's direction. Wish it would drop more...

Posted: Fri Feb 09, 2018 1:21 pm

by DrGoogle2017

I too wish the market can drop some more. I’ve been nibbling but I set lower limit prices now. Maybe it will hit, maybe not. Who knows? I’m enjoying the sale, especially when I got lucky a few weeks ago.

Re: Feeling good about the market's direction. Wish it would drop more...

Posted: Fri Feb 09, 2018 2:06 pm

by magneto

As an 'Adaptive Value Investor' a la Ben Graham, quite content to be able to deploy some of the defensive (income producing) reserves into Stocks, after what seems a long wait.
High valuations had kept stock target to circa 25%, now lifted to circa 30%. (Max 75%).
Will only move monies at 10% of deviation from target per week/month, as suggested by others in previous threads.

Do find interesting that here in the UK as some expected, longer duration Bonds have failed in their -ve correlation duty. They zigged as Stocks zigged.
Shorter duration has been the place to be.
Has anyone noticed if this has been discussed in any US context threads this week?
It is a significant issue in portfolio design, going forward.

Re: Feeling good about the market's direction. Wish it would drop more...

Do find interesting that here in the UK as some expected, longer duration Bonds have failed in their -ve correlation duty. They zigged as Stocks zigged.
Shorter duration has been the place to be.
Has anyone noticed if this has been discussed in any US context threads this week?
It is a significant issue in portfolio design, going forward.

Magneto - I was a net seller all of last year moving from 80% to 58% equities. A little confused that as equities have dropped by allocation has not changed - because bonds have also been going down.
I understand that yields are rising. But in my opinion there has not been enough discussion on what rising interest rates might mean for portfolio design.

I think the 3 fund portfolio - particularly in this environment is a little too simple. Particularly if you expect to be withdrawing and/or selling to buy equities.